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Assume your firm manufactures millions of hard drives

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Calculating Dell's Profit Increase

Suppose your firm manufactures 3 million hard drives per year specifically for Dell laptop computers. Suppose your average variable cost C=$20/unit, annualized cost of investment to build a hard drive factory I=$30 million, and the market price (bailout market price in the event Dell does not buy) Pm=$22/unit. If Dell agrees to purchase the 3 million hard drives at a price P*=$30.2/unit and subsequently renegotiates to only purchase for $26.8/unit, how much has Dell increased its own profits?

 

Reference no: EM1332225

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